🔒 Premium: Transaction Capital’s ‘shitshow’ – CEO David Hurwitz on his share sale, SA Taxi and the way ahead

Transaction Capital’s position as South Africa’s second-best wealth creator for shareholders (behind Capitec) over the past decade fell in a heap this month as the share price collapsed from R30 to under R10. A pre-results profit warning on March 13 triggered selling that accelerated as rumours took hold, resulting in the shares falling precipitously. The fact that CEO David Hurwitz sold a large chunk of his shareholding in December fuelled Mr Market’s righteous indignation. In this candid interview with BizNews founder Alec Hogg, the embattled company’s bruised CEO cuts to the chase, providing context and explaining why the company has aborted a significant stock issue (to buy more of WeBuyCars) because it believes the shares have fallen too far.


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Timestamps for the interview below:

  • David Hurwitz on the share price decline – 01:45
  • On the impact of the minibus tax price increase – 06:25
  • On taxi operators, activism and quelling riots – 09:30
  • On still being absolutely committed to the minibus taxi sector – 11:00
  • On people trading on fact and not rumour – 20:40
  • On having sufficient capital and the founders not being forced to sell their shares – 22:10
  • On exercising the right to acquire a bigger stake of WeBuyCars – 25:15
  • On why they are not buying back their own shares if it is at such a low price – 27:30
  • On the plan to regain the status as an exponentially growing company – 29:20

Some extracts from the interview:

David Hurwitz on the share price decline

We really didn’t expect the type of response that we got. I think everybody understands the state of the South African environment. More importantly for us, I think most understand the the state of the minibus taxi sector and as we’ve seen, SA Taxi’s earnings drop for three years in a row, they obviously dropped during COVID, but then dropped again in 2021 off the base down about 4% of 2020 and then again 26% in 2022 off the 2021 base. So we have really been battling with the sector over the last three years and the main reason we see is that the sector has not recovered fully. When COVID came, we all expected the minibus taxi sector to recover very quickly and fully, and that was based on our 20 year experience in the sector. We all know that the minibus taxi sector is absolutely built into the South African economy. It’s structural to South Africa and our economy can’t operate without it. When people wake up in the morning, if they are socially or economically active, they step out of their house and the first few rands they spend will be in the sector. So it’s a non-discretionary spend. And for this reason, we expected the industry to recover very quickly, which we did see, but not fully. And there were various events that happened over time that kept on kind of delaying this recovery. 

Read more: Beating Buffett: CEO David Hurwitz shares the four key ingredients of top stock Transaction Capital’s secret sauce

So first it was Covid, which was the initial downturn. Then we had the second lockdown, then we had the riot in KZN, then we had the taxi unrest in the Western Cape. Then we had that terrible flooding which closed the Toyota plant, and that’s our main facility or the main facility that produces the product that we finance, which is the minibus taxi, Toyota. And then we saw a whole bunch of other things. High interest rates moved up very quickly. Higher fuel prices, no fare increases. I think only one fare increase over a three year period. The commuter movements reduced, which we thought was quite a structural thing, and the price of the car kept on going up for three years. So really, really difficult times for the sector. And our key metrics did not change much. Our collections kind of remained relatively stable, but not at a full recovery. So somewhere between 85 and 95% we tried clever things, we changed the way we grant credit, we changed the way we connect. We cut costs, we changed our product construct to make it more affordable. But none of that really worked. And our main strategy was to continue repossessing and refurbishing everything that we repossessed. And I can talk about that a little bit later, but that strategy also didn’t work. And this is now resulting in coming up with a new strategy which requires our provisions to be increased and hopefully to reset the business on day one today so that going forward it’s got a better chance. 

Read more: Transaction Capital: CEO David Hurwitz on WeBuyCars

On why they are not buying back their own shares if it is at such a low price

It’s actually a very interesting question and we actually debated this for quite some time. But I think what the market has shown us is that they are concerned about liquidity and we’ve gone out on the front foot to talk to everybody about that. But we didn’t want the market to see capital moving out of the business. We don’t want that to be misinterpreted. Yes, earnings are going to be down, but we wanted to show that we had a plan and that we weren’t just watching this business go down three years in a row. So we came up with what we thought was a good plan, maybe too aggressive, and it was interpreted, in our opinion, quite badly. And we were very careful as to what information we put into the market. We tried to be as deliberate as possible to make sure that there’s no room for misinterpretation. I really don’t know how people would interpret the share buyback. 

Read more: Boardroom Talk: Thanks to booming WeBuyCars, we’re happily along for the Transaction Capital ride

On the plan to regain the status as an exponentially growing company

The only way you can regain that status is through delivery. There’s a question of market credibility. And then also the issue of: are we a growth company? Both of those things are only regained through delivery. If you take a look at our businesses, Nutun continues to grow and and all the structural elements around that business are supporting growth. Elsewhere in the world, nobody wants to work. There is this great resignation. Consumer facing businesses in Australia, the UK and the US need staff to be able to engage with their customers, be it collections, be it customer retention, be it dispute resolution, be it customer service, whatever it might be. And in South Africa, we have an abundance of that staff. We have all of the right technologies to do that. We are in the right time zone. Our competitive areas like India and the Philippines did not do very well with work from home. And we are growing international revenues off a South African cost base, which is a great business model. And I think the structure of that, and there is actually government support for that in South Africa, that’s one area where we get fantastic government support. So with that business, there’s been no change. WeBuyCars, in the long term, we still view as a as a high growth business. I think our market position is fantastic. We’ve spoken a lot about this before. The technologies that we have are great. I think the moats around that businesses is huge. We’ve got the infrastructure, we’ve got the data set, we’ve got the trusted brand in a stigmatised sector that, we spoke about that last time. And, long term, yes, 2022 was a purple patch for the used car sector and 2023 kind of a reversal all of a sudden from having no new cars available in 2022. So, a bit of a shift in the market. But there we’ve got a great market position and we see fantastic growth. We building that new business, GOMO, which we probably don’t have time to talk about, but again, a great growth prospect and I’m hoping that we can rebase SA Taxi to be a smaller, more efficient business. It is never going to grow at the rates that we see these other businesses growing back. But hopefully a good solid performer and with the other three businesses in our stable together with a solid SA Taxi, I think we can regain a growth stock rating again. But as I say, only time will tell and we have to now put our heads down and deliver that as management.